Rising NPAs, a major concern for financing infra projects: bankers

Maharashtra Chief Minister Prithviraj Chavan (left) with Union Finance Minister 
P. Chidambaram after a meeting with corporates and bankers in Mumbai on Monday
. Photo: Paul Noronha
BL : MUMBAI, April 8, 2013

Growing non-performing assets (NPAs) is a major hurdle for providing more finances to infrastructure projects, bankers told Finance Minister P. Chidambaram here on Monday.

“We conveyed to the Finance Minister that due to current dispensation regarding NPAs, there are difficulties in providing more finances,” State Bank of India Chairman Pratip Chaudhuri said, while talking to reporters after a meeting the Finance Minister had with bankers and industrialists here.

There would be more meetings and the government would take a final action, he added.

“In the pre-policy meeting with the Reserve Bank of India (RBI), we have asked for at least a 50-basis point cut in the Cash Reserve Ratio. As till the time CRR is not cut, the interest rate will not come down only with the repo rate cut. It is difficult to have a rate cut (by SBI) before the policy,’’ Mr. Chaudhuri said.

“We’ve identified 215 projects, which, for one reason or another, are stalled. We’ve identified another 126 projects that are new projects to which banks have sanctioned loans but which have not taken off,” said Mr. Chidambaram while mentioning about the projects in the western region. “We are sitting with bankers and industry to find out why a particular project has been stalled and try to remove that block,” the Finance Minister said. The main reasons are land acquisition, gas or coal linkages, environmental clearances, forest clearances and in some cases the inability or the unwillingness of the bank to restructure the loans. These apply to all the projects.

The Finance Minister took stock of the situation. But no promises were made.

“We have to deal with them project by project,” Mr. Chidambaram added.

The SBI Chairman said, “We spoke about the reasons why projects were stalled. Among the reasons, the most important ones were coal related, land acquisition and environmental clearance.”

Civil court not to have jurisdiction to entertain any suit in respect of any matter coming under RDDB ACt 1993

“34. Civil court not to have jurisdiction. – No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)”.

POSTED BY ADVOCATEMMMOHAN ⋅ 

NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION

NEW DELHI

REVISION PETITION NO. 721 OF 2013

(From  order dated 26.11.2012 in Appeal No. 201/2012 of the

               State Consumer Disputes Redressal  Commission,  Uttar Pradesh, Lucknow )

With

IA/1315/2013

(STAY)

Standard Chartered Bank

Through its Authorised Officer, Mr.Ajay Rana

10, Parliament Street, New Delhi                                … Petitioner

Versus

Virendra Rai, S/o Late Sh.Patu Rai

R/o 3/83, Sanjay Gandhi Nagar

P.N.Road, Tehsil & Dist. Lucknow                                      … Respondent

BEFORE:

HON’BLE MR.JUSTICE J. M. MALIK , PRESIDING MEMBER

          HON’BLE MR. VINAY KUMAR, MEMBER

For the petitioner            : Mr. Sanjeev Sagar,  Advocate

For the Respondent :  N E M O

PRONOUNCED ON  01.04.2013

                                                O R D E R

JUSTICE J.M. MALIK

1.      The Civil Court or any other authority can not arrogate to itself  the right to make decisions or interfere with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short ‘SARFAESI Act’).  Here lies the rub in Section 34 of SARFAESI Act  which reads as follows:-

 “34. Civil court not to have jurisdiction. – No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action  taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)”.

2.      The State Commission, Lucknow, presided over by S/Sh. Rampal Singh, Presiding Member and Jugal Kishore, Member, passed the following order:-

“… The petitioner states that in order dated 24.07.2011 the Consumer Forum has ordered the petitioner bank that during the pendency of this case, the petitioner shall not take possession of property of complainant bearing No.Plot No.14, Gaurbhith,Fazulahganj, Lucknow. The Consumer Forum has also given next date as 25.08.2012 for further proceedings.

The petitioner has prayed before this Forum for setting aside of order dated 24.07.2012 by this Forum. Further, after the passing of the date fixed by the Consumer Forum, i.e. 25.08.2012, the petitioner has not informed us about the orders passed by the Consumer Forum.  After hearing the counsel for petitioner in detail, it is found that the appeal of the petitioner is merit-less and hence liable to be dismissed.

                                         ORDER

          Present appeal does not have any force and hence is dismissed. The order passed by the Consumer Forum dated 24.07.2011 in case No. 780/11 is hereby confirmed. The cost of this appeal shall be borne by the petitioner himself.

          The certified copy of the order be supplied accordingly to rules”.

3.      We  have  also  seen  the order  passed  by the District Forum-II, Lucknow, which has  observed as under :-

“…… The complainant on the other hand objected to objection of respondent and stated that this Forum has jurisdiction to hear the present case.  From their side an order passed by Hon’ble State Consumer Disputes Redressal Forum, U.P. in appeal No.694/09 titled “Gaya Prasad Vs. GIC Housing Finance Limited”  and order dated 01.05.09 has been relied upon, we have gone through the said order from which it is clear that only the Civil Court has been barred from hearing and thus only civil court does not have jurisdiction to hear the present case and not the consumer fourm.  Into this order, the Hon’ble State Consumer Forum, U.P. has also mentioned Section 3 of the Consumer Protection Act, 1986, wherein it has been specifically stated that the provisions of this Act shall be in addition to and not in derogation of provisions of any other law for the time being in force. Referring to this provision, the Hon’ble State Consumer Forum, U.P. has stated that the powers given to the Consumer Court are not in derogation of the provisions of SARFAESI Act.  Hon’ble State Consumer Forum, U.P. and its order in case titled “Kishori LalVs. ESI Corporation has stated clearly that the Consumer Forum has the jurisdiction to hear such cases and section 34 of the SARFAESI Act does not bar the said jurisdiction and in such circumstances, the objection of respondent bank does not have any force”.

4.      Counsel for the petitioner present.  Respondent has not appeared.  However,  his written submissions have been placed on record.  We have gone through the same.  Instead of touching the heart of the problem, the complainant has just skirted it.  He has countenanced the deficiency on the part of the Bank.  He has not spoken about the jurisdiction of this case.

5.      The learned counsel for the petitioner  vehemently argued that the Bank had cited before the State Commission, the order passed by this Bench, titled as “Bank of Baroda Vs. M/s. Geeta Foods”, decided on 08.11.2012 (RP No. 3499 of 2012).  The counsel for the petitioner alleges that this order was not discussed by the State Commission. He contended that the State Commission should have mustered the courage to mention about this order which otherwisetantamounts to Contempt of Court.

6.      We have already held that as per Section 34 of the SARFAESI Act, 2002, the District Forum or the State Commission have no power to interfere with the SARFAESI Act. The District Forum and State Commission are under the misconception that the Consumer Court is not a civil court.  In Patel Roadways Vs. Birla Yamaha Limited, 2000 (4) SCC 91, AIR 2000 SC 461, the Hon’ble Apex court has held :

“The contention that the use of the term ‘suit’ in Section 9 of the Carriers Act shows that the provision is applicable only to the cases filed in a civil Court  and does not  extend to proceedings before the National Commission which is a forum to decide complaints by Consumers following a summary procedure cannot be accepted. The term ‘suit’ is a generic term taking within its sweeps all proceedings, initiated by,  a party for realization of a right vested in him under law.  The meaning of the term ‘suit’ also depends on the context of its use which in turn, amongst other things, depends on the Act or the rule in which it is used.  No doubt the proceeding before a National Commission is ordinarily a summary proceeding and in an appropriate case where the Commission feels that the issues raised by the parties are too contentious to be decided in a summary proceeding it may refer the parties to a civil Court.  That does not mean that the proceeding before the Commission is to be decided ignoring the express statutory provisions of the Carriers Act (Section 8) in a proceeding in which a claim is made against a common carrier as defined in the said Act.  Accepting such a contention would defeat the object and purpose for which the Consumer Protection Act was enacted.  A proceeding before the National Commission comes within the term ‘suit’.

7.      In S.James Vincent Vs. Greater Cochin Development Authority, 1994 (1) CPJ 174 (NC), this Commission held that “a complaint filed by the complainant suppressing the fact that the matter was already sub judice in the Sub-Court, Ernakulam, was dismissed by the State Commission as the case was already sub judice before a Civil Court.  In appeal, the National Commission upheld the order of the State Commission holding that the complaint was gross abuse of the Consumer Protection Act”.                 

8.      In Oswal Fine Arts Vs. H.M.T., 1991 CPC 43: (1991) 1 CPJ 330: 1991 (1) CPR 386 (NC), this Commission upheld the important principle that when a matter is sub judice before the ordinary Civil Courts of the land, the Consumer Commission cannot and will not entertain any claim for compensation in respect of the same subject matter.

9.      It must  be borne in mind that under Section 6 of the Indian Post Office Act, the Consumer Fora  have got limited jurisdiction.

10.    Again,  in Southern Railways Vs. M.Chidambaram, 2002 (1) CPJ 34: (2002) 1 CPJ 342 (NC),  it was held that since it was not disputed that untoward incident as mentioned in Section 124-A of the Act has occurred the proper forum of  adjudication would only be before the Railway Claim Tribunal under Section 15 of the Railway Claims Tribunal Act, 1987.  The consumer court had no jurisdiction in this respect.

11.    The consumer court cannot deal with the directions given to a Company declared ‘sick’ by BIFR.

12.    In Dinesh Kumar Vs. Railway Station Master, Raipur Station, IV (2004) CPJ 136 (Chhattisgarh), it was held that as Section 15 of the Railways Act, clearly bars jurisdiction of any other Court authority, consequently, remedy under Consumer Protection Act, 1986 stands barred and was not available to the complainant.

13.    Last, but not the least, this Commission clearly, specifically and unequivocally  held  in Traxpo Trading Co. Vs. The Federal Bank  Ltd, I (2002) CPJ 31 (NC)  that under Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, jurisdiction of  this Commission has been barred, where the Bank has filed ‘suit for recovery’,  before DRT.

14.    Under these circumstances, the proceedings pending before the District Forum are hereby quashed and the revision petition is accepted.  The complaint is dismissed. Copy of this order be sent to the State Commission and District Forum to follow the order passed by this Commission, time and again, without caring whatever their personal views are.

    ……..…………………………

(J. M. MALIK,J.)

                                                                                       PRESIDING MEMBER       

…..…..…………………………

(VINAY KUMAR)

                MEMBER

KFA lenders to initiate process to liquidate Mallya's assets next week

B S :Manojit Saha  |  Mumbai  April 11, 2013  00:58 IST

The Goa villa, Mumbai office could be put on the block

The tussle over recovery of loans given to Kingfisher Airlines (KFA) between a 17-member consortium of banks and promoter Vijay Mallya seems to have entered the last lap.

 The lenders are set to start from next week the process to liquidate the physical assets pledged with them.

These assets, given to banks as collateral, include Mallya’s villa in Goa, Kingfisher’s office at Mumbai’s Andheri area, a luxury yacht, buses used by KFA to ferry travellers at airports and other ground-handling equipment.

Apart from physical assets, bankers also hold the pledged shares of United Spirits, Mangalore Chemicals & Fertilizers and KFA, besides corporate guarantees of United Breweries Holdings. 

State Bank of India (SBI), on behalf of the consortium, has already started selling United Spirits shares.

 It had said the total value of the collateral was estimated at Rs 6,500 crore, against the total dues of Rs 7,000 crore to all banks, including the unapplied interest of Rs 850 crore. 

The total value of collateral does not include the Kingfisher Airlines brand, also pledged with banks.

SBI will send the demand notice to KFA under Section 13(2) of the Sarfaesi Act; this means the company will have the chance to repay the loan within 60 days.

 If it fails to repay the loans, the banks would invoke Section 13(4) of the Act. After 90 days from the date the demand notice is sent, banks could sell the assets if the borrower is still not able to repay loans.

SBI sends notice to Kingfisher Airlines

financialexpress:APR 10 2013, 12:14 IST

State Bank of India (SBI) has sent Kingfisher Airlines a legal notice to recover its loans, bankers said on Tuesday. The airline can either suggest an out-of-court settlement or take legal recourse, in which case bankers will move the Debt Recovery Tribunal, a banker explained.

Although the lenders have sold shares of United Spirits and Mangalore Chemicals and Fertilisers, banks are still not confident of recovering their entire loans from Kingfisher.

 “It looks like we will have to invoke the corporate guarantees given by United Breweries Holdings to recover the loans,” a banker with direct knowledge of the development said.

Kingfisher owes over Rs 7,000 crore to a consortium of 17 lenders led by SBI which has the maximum exposure of Rs 1,800 crore.

Chandigarh-born lawyer poised to become top US judge

 IANS: Thursday, April 11, 2013, 10:28 [IST

Washington, April 11:2013:

 Described by President Barack Obama as a "trailblazer", Chandigarh-born Indian-American legal luminary Srikanth 'Sri' Srinivasan appears poised to become the first South Asian judge in a US appeals court. 

Srinivasan, currently the principal deputy solicitor general of the US, Wednesday headed toward confirmation to the prestigious US Court of Appeals for the American capital "often called the nation's second-highest court" with little opposition from Republican senators.

 As he faced the Senate Judiciary Committee Wednesday, Republican Orrin Hatch indicated that he would vote for him even as he pressed Obama's nominee on whether he would be able to step away from his current role as an advocate and be impartial as a judge.

 He repeatedly said he was "impressed" with Srinivasan and, apparently convinced by the nominee's answers, eventually indicated that he intends to support him saying "I think you're going to make a great Circuit Court of Appeals judge," according to Huffington Post. 

Srinivasan outlined a traditionally moderate approach to the law, stressing "open-mindedness and objectivity," according to USA Today.

 "It's a case-by-case approach," he said when asked for his judicial philosophy. "There's no grand unifying theory." 

There is not yet a date scheduled for a vote on Srinivasan, and one likely won't happen for a couple of weeks at the earliest, the Post said. Tea Party conservatives such as Senators Ted Cruz, R-Texas, and Mike Lee, appeared impressed as well, according to USA Today. 

Cruz, who clerked with Srinivasan at the 4th Circuit Court of Appeals, quipped, "I am hopeful that our friendship will not be seen as a strike against you by some." 

There are currently four vacancies on the 11-member court, which is often considered a stepping stone to the US Supreme Court. 

The White House has mounted an all-out effort to win his confirmation, including letters from former solicitors general and top deputies.

 "Sri has a first-rate intellect, an open-minded approach to the law, a strong work ethic and an unimpeachable character," the former law officers wrote last week. They called him "one of the best appellate lawyers in the country." 

If confirmed, Srinivasan, 45, who succeeded another Indian American, Neal Kumar Katyal, in August 2011 in his current job, will be just the third South Asian named to any federal judgeship. Srinivasan was born in Chandigarh and grew up in Lawrence, Kansas.

 He received his BA with honours and distinction in 1989 from Stanford University and his JD with distinction in 1995 from Stanford Law School, where he was elected to Order of the Coif and served as an editor of the Stanford Law Review.

 He also holds an MBA from the Stanford Graduate School of Business, which he received along with his JD in 1995. 

Srinivasan received the Attorney General's Award for Excellence in Furthering US National Security in 2003 and the Office of the Secretary of Defence Award for Excellence in 2005. 

Vijay Mallya set to lose more assets

 Live Mint :Mihir Dalal &   |  P.R. Sanjai  :Wed, Apr 10 2013. 10 43 PM IST

Kingfisher lenders sell pledged shares worth millions in USL, MCF; UBHL’s stake in airline falls to 21.36%

UB Group chairman Vijay Mallya is set to lose more of his assets after lenders to Kingfisher Airlines Ltd invoked pledges worth millions of shares in United Spirits Ltd, Mangalore Chemicals and Fertilizers Ltd (MCF), as well as his grounded airline.

Mallya has investments in the UB Group companies partly through his holding firm, United Breweries (Holdings) Ltd (UBHL).

A group of lenders, led by the State Bank of India, is selling shares to recover some Rs.7,000 crore loaned to Kingfisher Airlines, as the airline— which has been grounded since October—has been unable to repay debt. The shares were pledged by the UB Group as security for loans taken by Kingfisher.

UBHL’s investment in Mangalore Chemicals slumped to just 3.44% from 24.51% earlier, the company said in a filing to the National Stock Exchange on Tuesday.

Mangalore Chemicals said that pledges equal to 10 million shares were invoked by bankers.

On 4 April, Mint reported that Kolkata-based industrialist Saroj Kumar Poddar, chairman of the Adventz Group of which Zuari Agro Chemicals Ltd is part, was keen to take over Mangalore Chemicals from Vijay Mallya’s UB Group because he believes the company is a “great strategic fit” for Adventz Group’s own farm inputs business.

Poddar’s firm owns a 10% stake in MCF acquired from UB Group’s lenders. It wasn’t immediately clear whether he would bid for more Mangalore Chemicals shares that are likely to be sold.

However, a UB Group spokesman said UB Group’s direct shareholding in Mangalore Chemicals is 21% without giving more details on the shareholding pattern.

“Besides this, the articles of association of Mangalore Chemicals gives UB Group the right to nominate three directors which gives board control as 50% of the board has to have independent directors and the maximum is 11. UB Group also enjoys the support of shareholders owning 17% of Mangalore Chemicals. Besides this, Zuari has publicly stated that they will not launch any hostile action,” the spokesperson said.

Over the past two weeks, the lenders sold 38.37 million shares in Kingfisher, bringing UBHL’s stake down to 21.36% from 24.44% earlier.

UBHL’s investment in the group’s crown jewel, United Spirits dropped to 15.73% from 17.75% after lenders invoked the pledge of 2.65 million United Spirits shares, according to a filing on Wednesday.

UB did not respond to queries on whether UBHL had pledged any more United Spirits shares with Kingfisher’s lenders.

Analysts earlier expressed concern that the sale of shares by lenders could hamper United Spirits’ deal with Diageo as Mallya may not have enough shares left to sell to Diageo.

The UK distiller agreed to buy 53.4% of United Spirits in November, including 27.4% stake from Mallya and the firm.

Diageo will follow up the purchase with an open offer to buy 26% of United Spirits from public shareholders at Rs.1,440 apiece—the price paid for the direct purchase.

The open offer began on Wednesday and will end on 26 April. However, many shareholders may not sell their shares as the United Spirits stock was trading significantly higher than the price offered by Diageo.

United Spirits stock closed up 1.16% at Rs.1813 on Wednesday on BSE. Mangalore Chemicals shares closed flat at Rs.41.30. Kingfisher Airlines stock closed at Rs.7.53 and UBHL at Rs.38

Default on commercial vehicle loans to hit banking sector

The stress on the banks’ asset quality could be seen with a lag because 
defaults are noted after commercial vehicle operators are not able to service
 loans for more than 90 days. Photo: Hemant Mishra/Mint
Live Mint : Krishna Merchant :Thu, Apr 11 2013. 12 04 PM IST

A good chunk of such loans is at risk because fleet operators are struggling to repay debt as economy stutters

Commercial vehicle loans are the new front in asset-quality problems for banks. Industry estimates put loans against commercial vehicles at Rs.60,000 crore.

 A good chunk of this is at risk because fleet operators are struggling to repay debt as the economy continues to stutter.

According to Crisil Research, the monthly collection ratio of a securitized pool of commercial vehicle loans amounting to Rs.17,700 crore fell to a four-year low of 94.4% in the December quarter from 96.2% a year ago. This trend is likely to be reflected on the non-rated portfolio of commercial vehicle loans in the country as well.

Freight demand has taken a hit due to lower growth in production of industrial goods. The tepid demand meant that truck operators were unable to pass on the increase in diesel prices. Truck rentals slipped 1.5-3% in March and were down around 8% for the just-ended fiscal year, according to data compiled by Indian Foundation of Transport Research and Training. That has put truckers’ debt servicing ability under a lot of pressure.

To be sure, credit to transport operators has slowed drastically—6% year-on-year growth in February compared with 16.9% a year ago—but they could soon start defaulting on loans if there is no recovery in sight.

The stress on the banks’ asset quality could be seen with a lag because defaults are noted after commercial vehicle operators are not able to service loans for more than 90 days. The proportion of loans that are not paid for more than three months have increased by 100 basis points, said Crisil Research. Defaults by transport operators could rise beyond six months, leading to a potential rise in non-performing assets, according to Crisil.

While banks can repossess and sell the vehicles of defaulters, it does lead to a certain amount of write-off since the resale value of trucks is declining. Although the banking sector’s overall exposure to commercial vehicles is around 1.5%, it will weigh on banks and non-banking financial companies that have high exposure to truck operators. Truck loans make up 7% of the total loans for HDFC Bank Ltdand ICICI Bank Ltd, according to estimates by Emkay Global Financial Services Ltd. For IndusInd Bank Ltd, it is 17% of total loans, 13% for Mahindra and Mahindra Financial Services Ltd and 33% for Shriram Transport Finance Co. Ltd, according to the brokerage.

Chidambaram talks tough on loan defaulters

Finance minister P. Chidambaram met chiefs of public sector banks and
 other financial institutions in New Delhi on Monday. Photo: Indranil Bhoumik/Mint
Live mint :Dineshunnikrishnan ::Remyanair :
Chidambaram asks banks to take all necessary steps to recover dues without hurting industry

New Delhi/Mumbai: The government on Monday sent a strong message to loan defaulters and served notice on promoters of debt-laden companies that they needed to infuse funds into their businesses to revive them and pay back the money owed to banks.

In a meeting with chiefs of public sector banks and other financial institutions in New Delhi on Monday, finance minister P. Chidambaram asked banks to take all necessary steps to recover dues without hurting industry.

“While we understand why NPAs (non-performing assets) have risen and why the restructuring of loans have increased, we also wish the banks take strong steps to recover their dues,” he said. “I think the promoters have a duty to bring in additional money and the companies have a duty to pay back the loans. We cannot have an affluent promoter and a sick company.”

Chidambaram added that steps taken by banks have started showing results with recoveries improving last month.

The finance minister’s warning comes at a time when the banking system has been getting squeezed by a sharp increase in NPAs, and lenders have been forced to undertake large-scale restructuring as economic growth is set to slow to a decade’s low of 5% in the current fiscal year.

The gross NPAs of 40 listed Indian banks increased to Rs.1.79 trillion from Rs.1.25 trillion in December, up 43.1% from the year-ago period. Debt recasts by banks are also on the rise at a faster pace as companies find themselves increasingly unable to repay their loans on time.

Until December, Indian banks have recast more than Rs.2 trillion under the so-called corporate debt restructuring (CDR) mechanism. Under CDR, banks typically stretch the repayment period to stressed companies, offer a moratorium, and reduce lending rates.

The total amount of such recasts may be about twice that as banks also extensively undertake bilateral restructuring outside CDR. Though there are no aggregate numbers available for this, such recasts are estimated to be nearly equal to the CDR figure.

Analysts expect at least 25-30% of such loans to turn bad, unlike about 10-15% that did so in the aftermath of the 2008 global financial crisis, when the Reserve Bank of India (RBI) sharply reversed the monetary stance by cutting rates to boost the economy. This time, however, RBI has been cautious in cutting rates due to high inflation. The central bank will announce its next monetary policy review on Tuesday.

Increases in NPAs and debt recasts impact banks’ profitability as they need to set aside more money for this in the form of provisions.

Mirroring the increasing pace of recasts, in the October-December quarter alone, banks restructuredRs.24,584 crore of loans, up from the Rs.19,544 crore in the previous quarter, to reach Rs.2.12 trillion.

In the current fiscal year so far, banks have recast Rs.62,085 crore under CDR, around 50% more than the whole of last year. Iron and steel is the single largest sector that has undergone CDR, constituting 23% as of December, followed by infrastructure (9.3%), textiles (8.24%), construction (7.3%) and telecom (5%).

Most airline loan recasts are outside CDR, as with grounded Kingfisher Airlines Ltd.

Chidambaram’s pointed remark about sick companies and affluent promoters may be significant with respect to the Vijay Mallya-promoted airline, which hasn’t flown since 1 October.

Kingfisher, which owes banks around Rs.7,000 crore, has been in talks with banks for further debt restructuring. But the banks, led by State Bank of India (SBI), are seeking to recover their money and want the promoters to infuse funds into the airline before a further loan recast is considered.

The bank is taking all steps to recover its loans provided to Kingfisher, SBI chairman Pratip Chaudhurisaid after the meeting.

“We are blazing all guns and taking all steps to recover (Kingfisher’s loans),” he said. “There is a core group. They are assessing what are securities, what can be disposed of quickly, then they are put on auction... That is how it goes.”

Kingfisher Airlines has pledged assets ranging from its brand to office furniture for Rs.7,500 crore against bank loans. The assets, including a villa in Goa, two helicopters, Kingfisher House in Mumbai and shares, have been shown as collateral for loans as of November 2011, minister of state for finance Namo Narain Meena told Parliament in December 2011.

Wilful defaulters

In the past, Indian banks have raised the alarm about a large number of companies misusing the restructuring facility even when there was no genuine need for a debt recast. To curb misuse, banks have been demanding a greater contribution from promoters to ensure that they continue to remain committed to the restructured assets.

RBI, too, has taken steps in this regard. In its draft guidelines on restructuring issued in January, the central bank stipulated that promoters’ contribution for such deals should be prescribed at a minimum of 15% of the diminution in fair value or 2% of the restructured debt, whichever is higher.

Banks can demand more than this from promoters, depending on the risk associated with the project and their ability to bring in a higher amount, RBI had said. This would be insisted upon in larger accounts, especially CDR cases. The central bank is currently working on the final guidelines.

Banks will take all steps under the law to recover funds from wilful defaulters, Rajiv Takru, secretary, financial services, said on Monday after the finance minister’s meeting with bank chiefs.

“(If) the promoter is holding onto money and the company is in trouble, won’t we expect that he puts some money into the company? Why should banks keep on restructuring and pump more and more money into the company,” he said. “There is security, there is collateral, there are personal guarantees. If the banks have to use these methods, they will use. After all, they are meant for a purpose.”

But the government sought to assure borrowers that the recovery drive will not impact those in distress.

“Banks are trying to make a distinction between wilful defaulters and people who are genuinely stressed and have genuine problems. Anybody who is genuinely stressed will get due consideration,” Takru said. “But anybody who is a wilful defaulter will need to repay. If the system needs to get tough with them, it will.”

Vaibhav Agarwal, a research analyst at Angel Broking Ltd, said, “The RBI restructuring guidelines stipulate that promoters need to bring in more contribution in case they want to restructure loans due to repayment difficulties. The statement (by Chidambaram) indicates possible efforts to streamline guidelines, which will allow banks to monetize promoters’ personal guarantees in the event of loan default.”

Separately, in an interview broadcast on Bloomberg TV India, the finance minister said concerns about retrospective taxation will be addressed once the tax dispute with Vodafone Group Plc is resolved. Once the case is settled, the government would be in a position to go back to Parliament to amend a provision on retrospective taxation, Chidambaram said in the interview.

Chidambaram downplayed concerns over a raft of transfer pricing cases, saying: “Merely because a few transfer pricing cases have arisen in a short spell of time, it doesn’t mean that we are doing anything extraordinary or anything that is unjust or harsh.”

PTI contributed to this story.